S&P downgrade Monday 8/8/11 US market poll

[moejoe15]

Is black Monday coming? What are you going to do with your stocks Monday 8/8/11?

 

[Greg Bernhardt]

Is black Monday coming? What are you going to do with your stocks Monday 8/8/11?

I feel anyone seriously in the stock market casino either knew this was coming for months or knew that regardless of the rating that the US was in trouble. With that said, I don't know :)

 

[Ivan Seeking]

Is black Monday coming?

No. The worst is over; at least for now.

If all three major credit rating agencies had particpated in the downgrade, or even if Moodys had followed suit, we would almost certainly be facing another crisis. But given that it was only S&P, and given thay they made a $2 trillion math error, I don't see this being a big problem at the moment.

The real problems have been Italy, and the tea party, not US debt.

 

[moejoe15]

The tea party? You mean you don't believe Fox blaming Obama who would have routinely raised the debt ceiling if he could have?

 

[Greg Bernhardt]

First warning to keep on topic

 

[Ivan Seeking]

The tea party? You mean you don't believe Fox blaming Obama who would have routinely raised the debt ceiling if he could have?

S&P was specific about this. The failure to automatically [as has always been done] raise the debt ceiling was one of the main reasons for the downgrade. That we would even threaten to default, [let alone by choice!] was enough to shake confidence.

S&P isn't even worried about our short-term debt. In spite of the nonsense from the right, now is not the time for draconian cuts in spending. We need to allow more time for economic recovery to take hold. But we also need to damp the trajectory of our debt over the next ten years. That is what S&P wants to see.

They also want to see the Bush tax cuts expire.

 

[QuantumCandy]

Selling out of what you own now would be the worst idea possible! (in my humble opinion) If you have the ability to buy more of what you already own - and if you purchased what you have under some sort of appropriate asset allocation model - then buy more. But... i hate to see people get the gambling fever and start making decisions when things get really good or really bad.

It's been proven that the average person who sticks to their initial asset allocation strategy in a retirement plan typically outperforms someone who changes strategies frequently.

I'm not happy about the downgrade, but i think it's a good thing since it's bringing a real valuation to our economy.

 

[SteveL27]

No. The worst is over; at least for now.

If all three major credit rating agencies had particpated in the downgrade, or even if Moodys had followed suit, we would almost certainly be facing another crisis. But given that it was only S&P, and given thay they made a $2 trillion math error, I don't see this being a big problem at the moment.

The real problems have been Italy, and the tea party, not US debt.

You don't think U.S. debt is a problem? We're running six wars on credit, we have a $14T debt, and $60T+ in unfunded liabilities for social programs. How is this going to end well?

 

[Astronuc]

Apparently the markets have expected a downgrade. There was a partial recovery on Friday. I would expect some bargain hunters on Monday, and perhaps some trading programs will kick in. If one is considering buying stock, then look over the last 5 years or so, look at the earnings per share (and ROI) and the dividends. Dividends > 3% look good compared to treasuries and savings accounts at the moment.

Also, look the Asian markets tonight as they open on Monday morning there, and then look at the EU markets before the opening of the US markets.

Expect some volatility in the near term.

 

[Insanity]

I would tend to agree with QuantumCandy. While everyone's financial situation and goals are different, holding now and even buying more would be a wise idea.

 

[turbo]

I would tend to agree with QuantumCandy. While everyone's financial situation and goals are different, holding now and even buying more would be a wise idea.

If you don't need to cash out in the near future (10 years or so, IMO) that's probably good advice.

 

[Insanity]

If you don't need to cash out in the near future (10 years or so, IMO) that's probably good advice.

Agreed, history performance shows that every 10 year block, almost without exception, the market goes up. The last 70 years or so, after every bear market, the following bull market goes longer and returns everything that was lost and more, sometimes many times more.

 

[Astronuc]

Imagine if one had bought GE stock at $7.00 per share during the week of March 2, 2009.

The US credit rating probably should be AA- with China and Japan.
http://www.nytimes.com/imagepages/2011/08/06/business/06sp-ratings-graphic.html?ref=business

That would reflect the current lack of fiscal discipline and debt.

 

[turbo]

Imagine if one had bought GE stock at $7.00 per share during the week of March 2, 2009.

Double-up in 2 years? I'd like that.

 

[AlephZero]

If you haven't taken any action already, there is no sense taking any now, because everything that is already known about the situation is already built into the price the market will open on Monday.

On the other hand, if you had the foresight to move your life savings from USD into Swss Francs a year ago, you would have doubled your money in a year, even before last weeks diversions. And that's without using any financial instruments more complicated than keeping some Swiss banknotes under your mattress.

But IMO many US residents seem to struggle the idea that anything other than a US dollar is really "money" at all

 

[Astronuc]

Double-up in 2 years? I'd like that.

Also, consider the current dividend - and look a Warren Buffet's warrants.

 

[turbo]

Also, consider the current dividend - and look a Warren Buffet's warrants.

Yep. 3.6% is a pretty nice yield. I wish I could get half of that on my savings.

 

[Vanadium 50]

First, whether there will be a market correction (in either direction) assumes that the downgrade was not correctly priced into begin with. I can't believe that this was a surprise to anyone - there were explicit warnings, after all.

That said, classical economic theory says stock prices should move up in response to a debt downgrade, not down.

 

[mheslep]

That said, classical economic theory says stock prices should move up in response to a debt downgrade, not down.

Eh? The theory being that money would flow out of debt into equities? Even so, I can imagine some counter arguments to equity prices going up.

 

[Vanadium 50]

Right. The short answer is that as the risk of one investment increases, other investments become more attractive. A longer answer is that to compensate for the increased risk, rates have to go up, which means prices go down, and bond and stock prices are inversely correlated.

 

[Astronuc]

Asian makets: Nikkei 225, Hang Seng, Straits Times are all down Monday morning. So watch what happens the rest of the day.

 

[russ_watters]

Is black Monday coming? What are you going to do with your stocks Monday 8/8/11?

I meant to buy some stock on Fri afternoon, but was thwarted by what I think was a software bug. Glad I didn't, but I'll be placing an order for tomorrow when I get home tonight.

 

[russ_watters]

Right. The short answer is that as the risk of one investment increases, other investments become more attractive.

Last week, despite all the talk about the debt being a problem, the money went in the wrong direction for debt to be the perceived problem, based on that conventional wisdom. IMO, that doesn't necessarily mean bonds got more attractive, but rather that stocks got more less attractive. And I think the reason is that debt isn't a self-contained problem, affecting only bondholders; it is a long-term drag on the economy that people are only now starting to take seriously.

...However, it is also possible that the debt talk merely came in second to a larger concern about a double-dip recession.

 

[khemist]

Dow is down over 300 points already. Almost every index is down over 4%...

 

[Astronuc]

Hold the stocks that one didn't sell two weeks ago, and buy stocks that have dropped ~10%, or wait to see if they fall a bit more.

 

[Topher925]

I'll wait a few days and buy some stocks once I think the market won't dip any further. Dow's now below 11,000 points and doesn't look like it will be stopping today.

 

[Ivan Seeking]

That was about twice as bad as I expected. "Jitters" is the only thing that seems to make any sense. It looked like it might rebound to about a 300 point loss but dropped again at the very end of the day.

I would change my vote to a "buy" now.

 

[jobyts]

If you are in the moving roller coaster, the safest thing to do is to stay there, not jumping in and out.

 

[Ivan Seeking]

If you are in the moving roller coaster, the safest thing to do is to stay there, not jumping in and out.

We just keep buying our mutual funds. IMO, either you make investing a full time job and become an expert, or you leave it to the experts. I've thought about trying my hand as a day trader but can't even begin to justify the time for the learning curve.

I don't have many regrest in life but when I heard a story about Warren Buffet, I felt a twinge of regret. By the time he was sixteen or so, he had read every book they had about economics, at his local library. Now why didn't I think of that?

 

[rhody]

To all who are following this thread, as I have just posted in my https://www.physicsforums.com/showpost.php?p=3442270&postcount=73". I will make it simple for you. Some stocks may NEVER recover to their former values, Raytheon comes to mind immediately. Explain to me how if the stock loses 60% or more in 1998 of it's value and then 13 years later it it is still worth 40% less than it was in say 1998, how that it a good thing ? You have lost your principal FOREVER. You will never make it back up. As I stated I my thread even 10 years out from retirement, I cannot afford to take the chance, because of the scenario I just laid out for you.

My big problem, is if the market starts to come back, do I buy while it is still near the bottom and risk it never coming back to the price I sold it at ? Not an easy call for sure. Myself and at least a dozen co-workers are so glad we did dump all of it about two weeks ago.

Rhody...

 

[Insanity]

To all who are following this thread, as I have just posted in my https://www.physicsforums.com/showpost.php?p=3442270&postcount=73". I will make it simple for you. Some stocks may NEVER recover to their former values, Raytheon comes to mind immediately. Explain to me how if the stock loses 60% or more in 1998 of it's value and then 13 years later it it is still worth 40% less than it was in say 1998, how that it a good thing ? You have lost your principal FOREVER. You will never make it back up. As I stated I my thread even 10 years out from retirement, I cannot afford to take the chance, because of the scenario I just laid out for you.

My big problem, is if the market starts to come back, do I buy while it is still near the bottom and risk it never coming back to the price I sold it at ? Not an easy call for sure. Myself and at least a dozen co-workers are so glad we did dump all of it about two weeks ago.

Rhody...

Individual company stocks may not return, but the overall market will.
This is why mutual funds are an important investment for many people.

Warren Buffet, regarded as one of the most successful investors, says to buy when everyone else is selling, and not to buy when everyone else is buying.

I will do what Warren believes, and if I cannot do it in the fashion that he does, I will do it with mutual funds, where I can get fractional shares of hundreds of companies for little cash.

For at least the last 70 years, after every bear market, the following bull market has almost always lasted longer and has always returned everything that was lost and more, often by several times more.

Are you making an emotional decision or a logical decision when comes to investing?

 

[Pengwuino]

I'm buying! Any good company right now is probably a steal .

 

[rhody]

Individual company stocks may not return, but the overall market will.
This is why mutual funds are an important investment for many people.

Warren Buffet, regarded as one of the most successful investors, says to buy when everyone else is selling, and not to buy when everyone else is buying.

I will do what Warren believes, and if I cannot do it in the fashion that he does, I will do it with mutual funds, where I can get fractional shares of hundreds of companies for little cash.

For at least the last 70 years, after every bear market, the following bull market has almost always lasted longer and has always returned everything that was lost and more, often by several times more.

Are you making an emotional decision or a logical decision when comes to investing?

You might have a different opinion, but I prefer to think I approach this logically and pragmatically, especially in these difficult economic times . I would love to be the cheery optimist. Deep down, I hope the market truly does recover for the sake of the American people, but another part of me says to hedge my bets and park the funds safely in fixed income for the near term. This is the first time I can ever remember being in stocks for over thirty years where a dozen or so or my co-workers did the same thing. We can't all be crazy, can we ?

Rhody...

 

[Pengwuino]

God I wish I was able to sell my shares in a certain mining company that wasnt going anywhere a month ago. I would have just gobbled up Microsoft right now considering it's near their 52w low :(

 

[rhody]

I'm buying! Any good company right now is probably a steal .

That's the spirit Peng ! I wish you the best, just be careful, and bloody hell, do your home work on the underlying strengths and weaknesses of the stocks or funds you dive into (pun intended) first.

Rhody...

 

[Greg Bernhardt]

Individual company stocks may not return, but the overall market will.
This is why mutual funds are an important investment for many people.

I will do what Warren believes, and if I cannot do it in the fashion that he does, I will do it with mutual funds, where I can get fractional shares of hundreds of companies for little cash.

These are some pretty pathetic 5 year returns. Many barely meeting inflation rates.
http://money.cnn.com/magazines/moneymag/bestfunds/index.html

Conversely, invest in Apple or GE two years ago and you double and triple your money.

 

[AlephZero]

We just keep buying our mutual funds. IMO, either you make investing a full time job and become an expert, or you leave it to the experts.

That's fine, so long as you remember two basic facts about mutual funds.

1. The typical "fund investment analyst" probably has a lot less "real life" experience than you do, assuming your age is greater than about 25.
2. Fund managers are not in the business of making you money. They are in the business of taking your commissions, and not losing you more money than other fund managers. If the market goes down 50%, your fund goes down 90%, but most similar funds go down 95%, your fund manager will count that as big-time win.

That said, the best time to learn to make your own decisions is in a bull market, where mistakes don't cost so much. But the best time to make money (IMO) is always in a bear market or at the end of a bubble, unless you suffer from chronic optimism (which is a very common disease).

 

[Insanity]

These are some pretty pathetic 5 year returns. Many barely meeting inflation rates.
http://money.cnn.com/magazines/moneymag/bestfunds/index.html

Compared to what?

The article doesn't state for what 5 year period those returns are for, there's no date on the article either far as I saw, other then the title being "The Investor's Guide for 2011". Looking at returns on other sources, I'd say its recent, but not the most current info.

If you click on the first fund, American Funds Mutual Fund AMRMX, and select to show the 5 year return ending on 8/5/2011, it looks to have a different value then what was in the article.

If you select to compare to the S&P 500, this fund outperformed it during that 5 year period. It looks like that fund returned a total of 16.58% (giving an average of 3.3% each year, which is close to the 3.12% in the article) while the S&P 500 somwhere in the negatives, it doesn't show the value. Google Finances does show a total return for the S&P of -12.5% ending 8/8/2011. In this case here, being in this fund would have been better then in a S&P 500 index fund.

The fund's detail from the article, also shows that since the fund's inception, it has returned 11.54% average each year. This is for at least 40 years as the current manager, according to that source, has been managing it for that time.

In fact if you click on each fund in the Large Cap category, changed the graph to show last 5 years, and add the S&P 500 for comparison, each one outperforms the S&P. The end dates vary a bit from fund to fund (some show 8/5/2001, others 8/8/2011), but comparing each fund to the S&P 500 for the same dates, they all do outperform it. Which they should, if a managed fund cannot outperformed the unmanaged market index, don't invest in it.

Conversely, invest in Apple or GE two years ago and you double and triple your money.

According to Google Finances;
GE's total returns:
5 year (ending on 8/8/2011): -52.96%
3 year (8/8/2008 to 8/8/2011): -45.3%
2 year (8/14/2009 to 8/8/2011): 4.97%

Comparison to the AMRMX fund, total returns:
5 year (ending on 8/8/2011): -15.52%
3 year (same dates): -8.27%
2 year (same dates): 9.8%

I'd say choosing the fund over GE would be better, twice the return.

Apple, of course, is outperforming the entire country practically financially.

 

[Ivan Seeking]

That's fine, so long as you remember two basic facts about mutual funds.

1. The typical "fund investment analyst" probably has a lot less "real life" experience than you do, assuming your age is greater than about 25.
2. Fund managers are not in the business of making you money. They are in the business of taking your commissions, and not losing you more money than other fund managers. If the market goes down 50%, your fund goes down 90%, but most similar funds go down 95%, your fund manager will count that as big-time win.

That said, the best time to learn to make your own decisions is in a bull market, where mistakes don't cost so much. But the best time to make money (IMO) is always in a bear market or at the end of a bubble, unless you suffer from chronic optimism (which is a very common disease).

We invest through my wife's employer with some amount of matching. I'm not talking about day trading. Unless you're an expert in your own right, day trading is just plain silly. The fact is that we have generally seen very good returns on our investments.

Most amateurs lose money when they play. And even worse, most amateurs have no idea that they're beyond their depth. If you want to talk about life experience, there it is in a nutshell. I've known plenty of people who, for a time, thought they knew what they were doing; right up until they lost their shirts.

 

[jtbell]

Oh, sheesh.

After the big drop in the stock market yesterday, I worked out a plan to transfer some money between my non-tax-deferred mutual fund accounts, and make some new purchases from cash on hand, to re-balance the stocks/bonds ratio to where I want it. This was to compensate not only for yesterday's drop, but for the broad decline over the last few weeks.

This morning, the market rose a lot, so I held off on executing my plan. Then in midafternoon, it dropped back almost to the day's starting point, at which point I pulled the trigger. Then it went back up for a net gain of 4-5% depending on which index you look at.

But my mutual fund transfers and purchases don't take effect until the end of the day so now I'm probably a bit overbalanced towards stocks instead of towards bonds. At least I got some practice in doing transfers, which I hadn't done before with these accounts.

 

[falc39]

Did a lot of people miss the obvious?

GOLD

Been a holder since 2007 :)

 

[turbo]

Did a lot of people miss the obvious?

GOLD

Been a holder since 2007 :)

Glad you didn't buy in during the early 1980s. You'd still be underwater.

 

[falc39]

Glad you didn't buy in during the early 1980s. You'd still be underwater.

How? Say I did and held it all the way today...?

and Bernanke just commited to 0% interest rates for another two years

 

[khemist]

Looks kinda like a short term bottom yesterday but I'm betting the market goes down a bit more. Sold a few shares on this recent bounce back. The stock went below the 20 day, bounced off the 50 day back to the 20 day moving average. I am thinking its going to go below the 50 day average again.

 

[mheslep]

Did a lot of people miss the obvious?

GOLD

Been a holder since 2007 :)

ok, under what 'obvious' conditions, different from now, would it be appropriate to sell your gold? What type of gold security is obvious to hold?

 

[turbo]

How? Say I did and held it all the way today...?

and Bernanke just commited to 0% interest rates for another two years

A friend of mine bought and sold gold pursuing market rates in 1980-81. Adjusted for inflation, market price was over $2000 back then, and it's a bit over $1700 now.

 

[Astronuc]

Gold is a commodity/asset bubble. It is considered a safe investment, as was housing, until the bubble burst. I knew a guy who invested heavily in gold and talked it up during the rise in mid-80s. The price then subsided. He lost most of his investment, and apparently he started stealing from the till of his employer.

http://www.finfacts.ie/Private/curency/goldmarketprice.htm

Meanwhile, from an interview with Wilbur Ross, "Stumbling Economy Translates To Stock Volatility" - http://www.npr.org/2011/08/10/139345529/stumbling-economy-translates-to-stock-volatility

 

[turbo]

My friend was not investing in gold. He was exploiting the bubble. He'd take out ads in newspapers, and then camp out in a motel room for a day or two buying gold. He'd unload the gold every day, if possible, to a middleman to refresh his cash-box for the next foray. As soon as gold started dropping, the price that he was willing to pay kept dropping, but some "investors" kept chasing the bubble, hoping that the price would spike again. It didn't, and they got burned.

 

[turbo]

BTW, I am friends with his middleman and he never held onto any of the gold, either. He did skim off some of the very nice pieces, but those were pieces that were antique and had value beyond the intrinsic value of the gold.

He took the very nicest pieces and put them in his antique shop. When the bubble started swelling, he bought a nice antique German 3-color gold sculpted (floral) band from my friend who bought at motels. That band is now my wife's wedding band. When we got married, we didn't have money for such frivolities, and I wanted to get her a nice heavy antique wedding band when I saw the opportunity. Luckily, Greg was very nice to us and sold us that beautiful ring at spot-gold price. A few months later, he would have given us a very tidy profit on that ring had we been willing to sell.

That 1980 peak looked like a needle, not a bubble.

 

[falc39]

Gold is a commodity/asset bubble. It is considered a safe investment, as was housing, until the bubble burst. I knew a guy who invested heavily in gold and talked it up during the rise in mid-80s. The price then subsided. He lost most of his investment, and apparently he started stealing from the till of his employer.

http://www.finfacts.ie/Private/curency/goldmarketprice.htm

Meanwhile, from an interview with Wilbur Ross, "Stumbling Economy Translates To Stock Volatility" - http://www.npr.org/2011/08/10/139345529/stumbling-economy-translates-to-stock-volatility

Kind of, I mean that is partially true. Gold is a bit different though, you have to see it from the perspective of a currency too, which it is. Especially today, it is very easy to go in and out of currencies and gold electronically. There are even gold debit cards (e-gold) and gold vending machines now! Kind of ironic when you think about how technology is making gold more viable. So I think it's not accurate to pair it with stuff like houses in the housing market or strict commodities like oil and rice. Central banks and nations are increasing their reserves and buying gold which adds to gold's legitimacy. Do central banks buy rice? or houses? Gold is in a category of its own. Its outlook is improving especially if everyone is going to keep devaluing their currencies.

A friend of mine bought and sold gold pursuing market rates in 1980-81. Adjusted for inflation, market price was over $2000 back then, and it's a bit over $1700 now.

Ok, I see, that is true if you did buy at the peak. But it is getting very close to breaking even and probably already has if you are one of those who didn't buy at peak and held. I wouldn't be surprised if it broke even within the next two years and possibly exceed because of Bernanke's commitment to 0% interest rates and leaving the door open for QE3.